March 13, 2008

Bout Over An Indiana Warehouseman’s Lien

Although the Miller’s Turnkey v. Cybertek case from the Indiana Court of Appeals may not directly affect most commercial lenders, the case does speak to the enforcement of an Indiana lien under the Uniform Commercial Code. If you happen to be involved in, or want to learn about, the foreclosure of a warehouseman’s lien in Indiana, you or your counsel should review Miller’s Turnkey, 878 N.E.2d 280 (Ind. Ct. App. 2007) (Miller'sOpinion.pdf).

Punch. Plaintiff Miller owned a warehouse and stored defendant Cybertek’s equipment for a fee. Cybertek delivered the equipment to Miller but never paid rent. Miller sued Cybertek and obtained a judgment for $23,600, presumably the amount owed for storage fees, and a decree authorizing the foreclosure of the possessory lien held by Miller. To satisfy the judgment, Miller sold Cybertek’s equipment for $45,000 to a third party in a private sale. (Miller put the proceeds in escrow.)

Counterpunch. Thereafter, Cybertek pursued a counterclaim against Miller for damages due to alleged non-compliance with Indiana’s Uniform Commercial Code in the sale of the equipment. Cybertek’s action sought damages for what it claimed to be the fair market value of the goods - $93,500. At issue was Indiana Code § 26-1-7-210, which deals with the enforcement of a warehouseman’s lien in Indiana.

Knockdown. The Indiana Court of Appeals concluded that defendant Cybertek was correct in that plaintiff Miller didn’t follow the rules when it disposed of the equipment. First, the Court found Miller did not provide the appropriate notice to Cybertek with regard to the sale. Second, the Court found that the sale was not “commercially reasonable” as required by statute. Finally, the Court found that there was sufficient evidence to support the contention that the fair market value of the goods was $93,500, not the $45,000 received in the Miller’s private sale. The opinion provides a road map for parties and their counsel who need to enforce a warehouseman’s lien, including how to establish a proper sale and sale price. Please read the opinion for more details.

Split decision. Although plaintiff/creditor Miller, the warehouse owner, ultimately was defeated by defendant Cybertek, the debtor who did not pay rent, all was not lost. At the end of the day, Miller will forfeit about $25,000, not $93,500. This is because Miller will get a credit for the initial $23,600 judgment it obtained against Cybertek. Furthermore, Miller’s private sale of the equipment, albeit defective, netted $45,000, which will be used to pay Cybertek. $93,500 – ($23,600 + $45,000) = $24,900, the net amount Miller will be out of pocket to Cybertek.

Lest we forget the attorneys’ fees and litigation costs both parties incurred in fighting one another. Neither the trial court nor the Court of Appeals awarded Cybertek attorney’s fees as a part of the judgment against Miller. Cybertek, in the end, probably lost money because it likely spent more than $25,000 in defending Miller’s lien foreclosure claim and in prosecuting its counterclaim. The same can be said for Miller –not only did it lose net $25,000, but it surely lost more when attorney’s fees and litigation costs were considered. The result of this case brings to mind a quote from our sixteenth president, Abraham Lincoln: “Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.” Perhaps the lawyers followed Lincoln’s advice in Miller’s Turnkey. Maybe the parties – the litigants themselves – just didn’t heed it.

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Bout Over An Indiana Warehouseman’s Lien

Although the Miller’s Turnkey v. Cybertek case from the Indiana Court of Appeals may not directly affect most commercial lenders, the case does speak to the enforcement of an Indiana lien under the Uniform Commercial Code. If you happen to be involved in, or want to learn about, the foreclosure of a warehouseman’s lien in Indiana, you or your counsel should review Miller’s Turnkey, 878 N.E.2d 280 (Ind. Ct. App. 2007) (Miller'sOpinion.pdf).

Punch. Plaintiff Miller owned a warehouse and stored defendant Cybertek’s equipment for a fee. Cybertek delivered the equipment to Miller but never paid rent. Miller sued Cybertek and obtained a judgment for $23,600, presumably the amount owed for storage fees, and a decree authorizing the foreclosure of the possessory lien held by Miller. To satisfy the judgment, Miller sold Cybertek’s equipment for $45,000 to a third party in a private sale. (Miller put the proceeds in escrow.)

Counterpunch. Thereafter, Cybertek pursued a counterclaim against Miller for damages due to alleged non-compliance with Indiana’s Uniform Commercial Code in the sale of the equipment. Cybertek’s action sought damages for what it claimed to be the fair market value of the goods - $93,500. At issue was Indiana Code § 26-1-7-210, which deals with the enforcement of a warehouseman’s lien in Indiana.

Knockdown. The Indiana Court of Appeals concluded that defendant Cybertek was correct in that plaintiff Miller didn’t follow the rules when it disposed of the equipment. First, the Court found Miller did not provide the appropriate notice to Cybertek with regard to the sale. Second, the Court found that the sale was not “commercially reasonable” as required by statute. Finally, the Court found that there was sufficient evidence to support the contention that the fair market value of the goods was $93,500, not the $45,000 received in the Miller’s private sale. The opinion provides a road map for parties and their counsel who need to enforce a warehouseman’s lien, including how to establish a proper sale and sale price. Please read the opinion for more details.

Split decision. Although plaintiff/creditor Miller, the warehouse owner, ultimately was defeated by defendant Cybertek, the debtor who did not pay rent, all was not lost. At the end of the day, Miller will forfeit about $25,000, not $93,500. This is because Miller will get a credit for the initial $23,600 judgment it obtained against Cybertek. Furthermore, Miller’s private sale of the equipment, albeit defective, netted $45,000, which will be used to pay Cybertek. $93,500 – ($23,600 + $45,000) = $24,900, the net amount Miller will be out of pocket to Cybertek.

Lest we forget the attorneys’ fees and litigation costs both parties incurred in fighting one another. Neither the trial court nor the Court of Appeals awarded Cybertek attorney’s fees as a part of the judgment against Miller. Cybertek, in the end, probably lost money because it likely spent more than $25,000 in defending Miller’s lien foreclosure claim and in prosecuting its counterclaim. The same can be said for Miller –not only did it lose net $25,000, but it surely lost more when attorney’s fees and litigation costs were considered. The result of this case brings to mind a quote from our sixteenth president, Abraham Lincoln: “Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.” Perhaps the lawyers followed Lincoln’s advice in Miller’s Turnkey. Maybe the parties – the litigants themselves – just didn’t heed it.